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The future of the federal health transfer

With the expiry of the Health Accord in 2014 looming, the debate about the role of the federal government in paying for health care is once again taking centre stage.

The School of Public Policy and Governance at the University of Toronto hosted a roundtable on the future of how the federal government transfers funds to provincial governments for particular programs. This is referred to as fiscal federalism.

Healthy Debate was at the roundtable and brings you insights from the experts on what to expect in 2014.

Public health care spending in Canada was estimated at $135.1 billion in 2010. Around 25% of public health spending is financed by the federal government, with the rest paid for by provincial governments. The federal transfer for health, last negotiated in 2004, increased at a rate of 6% per year over a ten year period.

Traditionally, part of this transfer has been cash, and part by allowing the provinces to receive federal tax points for themselves. However, because some provinces are poorer than others, a provincial tax point is worth less to poorer provinces than their population-based share of a federal tax point. For example, a tax point is worth more in a wealthy province like Alberta, than a poorer province, like New Brunswick.

The current federal tax point transferred to the provinces include ‘associated equalization’ where provinces with less tax income get some additional funds through the federal equalization program to produce equal per capita transfers in the Canada Health Transfer. Unless some new agreement is reached, as of 1 April 2014, as committed in Budget 2007, the Canada Health transfer will be allocated to provinces on an equal-per-capita basis. This commitment will benefit provinces that currently receive less Canada Health Transfer cash per capita than other provinces, notably Alberta, and potentially create inequity between provinces.

There are concerns that health care spending cannot continue to increase at current rates, and that governments cannot afford to continue to increase spending on health care in the next ten years. The 2004 Health Accord expires in 2014, and governments will need to agree on what the next federal transfer will be, well in advance of then. Listen to some experts, get informed and join the debate.

Watch a video of Mark Stabile, Director of the School of Public Policy and Governance and Professor at Rotman School of Management, summarize some of the main points of the roundtable discussion on the future of the federal transfer.

The Politics of the Federal Transfer

Watch a video of Guy Giorno, Parter, Fasken Martineau LLP and Former Chief of Staff to Prime Minister Stephen Harper discuss his views.

Giorno says health care is very personal to Canadians, and people react strongly to any suggestions of significant reform needed in the health care system. Politicians fear public backlash and have become reticent to make the major changes needed to the health care system. He says that in spite of declining federal revenues, the one promise that Canadians can expect politicians to keep is to increase health care spending.

Watch a video of Richard Simeon, professor of Political Science at the University of Toronto discuss his views.

Simeon says he’s both optimistic and pessimistic about the future of the federal transfer for health. He says that he is optimistic because the federal-provincial squabbling has been muted due to a greater shared focus on the economy. However, he is pessimistic about the opportunities to innovate the way money is transferred between levels of government due to the structural challenges of our federation.

The Economics of the Federal Transfer

Watch Michael Smart , professor of Economics at the University of Toronto discuss his views.

Smart focuses on the $40 billion cash transfer from the federal government to the provinces to pay for health care. Smart suggests that instead of negotiating the transfer, the federal government should earmark revenues from certain taxes for the health transfer. Smart says it would change the way that Canadian politicians think about the transfer, and make citizens more aware of how their tax dollars fund health care.

Watch Matthew Mendelsohn, Director of the Mowat Centre for Policy Innovation and former Deputy Minister of Intergovernmental Affairs for Ontario share his views.Mendelsohn says that balancing the principles of provincial autonomy in decision making with achieving equity of services across provinces is the key challenge in the upcoming renegotiations of the federal transfer. Mendelsohn suggests that changes in the economy – including the decline of revenues from manufacturing, growing provincial deficits and increased wealth from the oil industry have added a new dynamic to the negotiations.

Whether the upcoming negotiations about the future of the federal provincial transfer in 2014 result in the maintenance of 6% growth, as committed to by the current government, or in some other arrangement is not yet clear.In October of 2010 Maxine Bernier, a federal conservative MP and former Minister of Foreign Affairs said Ottawa should hand over authority for funding health care back to the provinces and allow them to fund health care solely on the basis of their own tax points, rather than cash transfers from the federal government.

Do you believe the federal government should stick with its stated commitment to a 6% annual growth in cash transfers?

Yes

No, it should be more

No, it should be less

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Whether the proposition of Maxime Bernier last year is a serious part of the current federal government’s negotiating position remains unanswered. Prime Minister Stephen Harper was quick to point out that Bernier does not speak for the federal government; however Bernier does say that small, limited government “would be the conservative thing to do”.

Bernier argued in a National Post editorial that “this is a recipe for permanent discord. The provinces act like special interest groups who would rather get money from the central government than increase their own taxes”.If the constitutional position of the federal government is that health care is a provincial responsibility, it is easy to lay the major funding responsibility at the feet of the provinces through tax transfers, while reducing the federal cash for health transfers. If most of the money to pay for health care is raised through provincial taxes, this means that over time, the richer provinces will be able to raise markedly more money to pay for health than poorer provinces.

However, for the current moment, the federal government remains the steward of the health care system through the Canada Health Act.

The commentary of experts at the School of Public Policy and Governance roundtable suggests that there is a disconnect between the principles and the practice of federal-provincial transfers and health, and that ideological debates about the role of the federal government in health persist and have a practical impact.The challenge for the future will be how federal-provincial negotiations can focus on the goals of reducing the rise in costs of health care, while maintaining the quality and equity of provincial health care systems across the country.

Would increasing tax transfers to the provinces (rather than cash) be a good idea as part of the federal commitment to supporting health care provincially?

Yes

No

I'm Not Sure

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This article has been closed to comments. 1 comments

Jeremy PetchOctober 21st, 2011 at 10:28 am

Great to see Healthy Debate cover this issue. I know it’s a bit policy-wonkish for some, but this is one of those fine points of policy that could have a significant impact down the line on how well certain provinces are able to deliver health services. You have really nailed the core issue, which is that tax points could exacerbate existing inequalities between the provinces. This is where I think Michael Smart is a bit off the mark when he characterizes health transfers as a simple accounting arrangement, and states that it doesn’t really matter whether the taxes to pay for health services are collected at the federal or the provincial level. It does matter, because rich provinces have a much richer tax base, so the more of the taxation that occurs at the provincial level, the more the quality of the provincial healthcare systems will be determined by the wealth of their residents. If a significant portion of the taxation occurs at the federal level, and is then distributed according to population, distribution of funds will tend to be more equal. Personally, I prefer a greater portion of healthcare taxation to occur at the federal level, to ensure that all Canadians have access to well-funded healthcare systems, regardless of whether the province they live in is lucky enough to be experiencing an economic boom.

This document is provided under the terms of a CreativeCommons Attribution Non-commercial Share Alike license. The terms of the license are available at: http://creativecommons.org/licenses/by-nc-sa/3.0/. Attributions are to be made to HealthyDebate.ca, a project under the direction of Dr. Andreas Laupacis, at the Keenan Research Centre, Li Ka Shing Knowledge Institute of St. Michael’s Hospital.